- EUR/GBP drops near 0.8380 as investors remain cautious ahead of Thursday’s ECB policy meeting.
- Both the ECB and BoE are anticipated to lower interest rates by 25 bps during their first policy meetings of the year.
- Market sentiment suggests that inflationary pressures in the Eurozone are largely under control.
EUR/GBP slips to a two-week low near 0.8380 during Tuesday’s European session, as the Euro (EUR) faces selling pressure ahead of the European Central Bank’s (ECB) monetary policy announcement on Thursday.
The ECB is widely expected to lower its Deposit Facility rate by 25 basis points (bps) to 2.75%, with the Main Refinancing Operations Rate expected to fall to 2.9%. This would mark the fourth consecutive rate cut by the ECB. Dovish expectations are fueled by the belief that inflation in the Eurozone is steadily moving toward the central bank’s 2% target. Additionally, concerns over potential tariffs from US President Donald Trump further weigh on the Eurozone’s economic outlook.
Market participants anticipate ECB President Christine Lagarde will deliver dovish guidance during her press conference following the policy decision. Several ECB officials have expressed confidence that policy rates could reach the neutral rate of 2% by year-end—a level that neither hinders nor stimulates economic growth. Analysts at Citi predict the ECB will continue to cut rates by 25 bps at each meeting “until at least the summer.”
Meanwhile, the Pound Sterling (GBP) remains supported against the Euro, as expectations grow that the Bank of England (BoE) will maintain a more gradual approach to its policy-easing cycle. Traders foresee two or three BoE rate cuts this year, with a 25 bps reduction anticipated at next week’s policy meeting.
